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Non-Competition Agreement FAQs
Contents
Introduction
What are covenants not to compete?
Are they enforceable?
What are examples of an employer's legitimate business interest?
What if I cannot work anywhere else?
What should I ask for when negotiating a covenant not to compete?
What if the employer is
not reasonable?
I signed my non-competition agreement after I started my employment.
Is it valid?
I signed an agreement but now want to go into business for
myself. Can I get out of it?
What if the agreement restricts my employment more than is
necessary to protect my employer? Do I get out of it?
What happens if I try to compete despite a valid agreement?
Non-Competition Agreement FAQs
Today more employees than ever find a promising
career path blocked by an agreement that meant little to them
when they signed it. In Ohio and many other states,
courts will enforce agreements by employees not to compete
against their former employer.
Fortney & Klingshirn provides answers
to frequently asked questions about covenants not to compete
to help you evaluate your options. These answers are
not a substitute for legal advise. You must consult
counsel liscensed to practice in your state before signing
or negotiating a covenant not to compete.
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What is a
covenant not to compete?
A covenant not to compete is a promise by
an employee not to compete with his or her employer for a
specified time in a particular place. A covenant not
to compete, which is also known as a non-competition agreement,
may be a clause in an employment agreement or a separate contract
standing by itself.
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Generally speaking, yes. Courts have
traditionally frowned upon restrictions placed by employers
on their employees' right to find and make a living.
However, courts will enforce non-competition agreements
if:
- the employer proves that it has a legitimate
business interest to protect by restricting its employees'
right to compete against it;
- the restriction on the employee's right
to compete is no greater than that necessary to protect
the employer's business interest; and
- the covenant not to compete is supported
by consideration, meaning that the employee received something
in exchange for it.
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What are some
examples of an employer's legitimate business interest?
An employer has a legitimate interest in preventing
an employee from taking advantage of relationships or information
acquired as a result of his or her employment. If an
employer gives a new employee its customer list, for example,
the employer can enforce an agreement that prevents the employee
from contacting those customers on behalf of a competing business.
As another example, an employer can protect
its investment in training an employee by preventing the employee
from taking the knowledge acquired on the job to compete against
the employer.
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If the employer's restriction against competition
prevents you from working anywhere for anyone, it is probably
too broad. Few employers will be able to convince a
court that their business interest is important enough
to prevent an employee from working for anyone else.
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I am in the process of negotiating a non-competition
agreement. What should I ask for?
First, you should ask to limit the agreement
to that which is necessary to protect the employer.
Second, if it is necessary to prevent you from working for
a period of time in a highly specialized industry or occupation,
ask for severance payment in the event of an involuntary termination
that is not for cause. If the employer really needs
this protection, it can pay for it.
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Consider working elsewhere. Before you
sign away your freedom to find other work, make sure that
you receive fair compensation, such as training and new contacts
or severance pay. If the exchange for the restriction
on your right to compete is not fair, find other employment.
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I signed my non-competition agreement after I started
my employment. Is it valid?
Maybe. The law is unsettled in Ohio
on such "mid-term" non-competition agreements.
If your employer attempts to enforce a non-competition agreement
for which you received nothing new, you can argue that you
did not receive "consideration" for it. Consult
your legal counsel on this subject for additional information.
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Not if it is otherwise valid, as discussed
above. The lesson here is that you must negotiate a
non-competition agreement before you start your employment,
not when you are ready to end it. Otherwise, you may
not be able to make your next career move.
Keep in mind that the law of non-competition
agreements tries to do what is fair: restrict the employee's
freedom to compete just enough to enable the employer to protect
its business interest. In other words, if it would not
be fair for you to take advantage of an employer's training
or investment, a court will allow the employer to protect
that training or investment.
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What if the agreement restricts my employment
more than is necessary to protect my employer? Do I
get out of it?
Not necessarily. In Ohio, courts have
the right to redraw non-competition agreements so that they
are no broader than what is necessary or lawful. Therefore,
unless the employer fails to prove the existence of any legitimate
business interest, the court will likely restrict the employee
at least to some extent.
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What happens
if I try to compete despite a valid agreement?
Plenty, and not much of it good. First,
your employer can file suit against you for an injunction
and money damages. If the employer can point to a facially
valid agreement and reasonable restrictions, most courts will
grant an injunction while the lawsuit is pending. You
will have to hire an attorney to defend the suit and, when
it is over, you not only may owe the money damages sought
by the employer, but may be prevented from competing for a
period of time following the lawsuit.
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You can contact us with a specific question.
We do not guarantee an answer and charge $200.00 for an initial
consultation. We therefore look at our email inquiries
as an opportunity to help you decide whether a consultation
makes sense for you.
Fortney
& Klingshirn
4040 Embassy Parkway, Suite
280
Akron, Ohio 44333
telephone 330-665-5445 - fax 665-5446
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